State securities regulators are warning the Securities and Exchange Commission to go slow in changing rules that would allow for public solicitation of private placements.
The SEC is set to meet Aug. 22 to consider opening the door to general solicitation of private securities issued under SEC Rule 506 of Regulation D. The change is mandated in the Jumpstart Our Business Startups Act.
Rule 506, a widely used exemption from securities registration, allows issuers to raise unlimited amounts of money from accredited investors. But the current rule does not permit general solicitation or advertising.
State regulators are worried the SEC will adopt interim rules to allow marketing of these private deals without first asking for public comments on specific proposals. The SEC has asked for general comments on how to implement the JOBS Act but has not yet proposed rules.
"Given the complexity of the issues involved … plus the enormous impact those changes will have on how these risky investments will be offered, we strongly urge the commission to follow its normal course of publishing the proposed rule for public comment before it becomes effective," the North American Securities Administrators Association Inc. wrote Wednesday in a letter to the SEC.
"Our concern is, once you do [an interim rule], you can't pull back," Heath Abshure, Arkansas' securities commissioner and NASAA's president-elect, said in an interview. "If you don't think through the effects of the changes, you could really wreak havoc."
SEC spokesman John Nester declined to comment.
NASAA also wants the SEC to perform a cost-benefit analysis of any changes.
"In this particular rule making, the commission's evaluation of 'costs' must include the losses sustained in low-quality investments that are marketable under the newly expanded Rule 506," NASAA wrote.